‘Demonstration city’ in New Mexico faces long odds

A rendering shows the research city that would sprawl across two counties in the New Mexico desert.

Photo: CITE Development LLC.

In early August, a group of tech executives and investors gathered at the Claremont Country Club in Oakland to sip drinks and nibble on hors d'oeuvres.

This wasn’t a social event but rather a meeting organized by the Berkeley Research Group, a high-powered management consulting firm in Emeryville, to pitch what I can only describe as an extremely unusual investment: a massive high-tech city built from scratch in the New Mexico desert.

Called the Center for Innovation, Testing and Evaluation, the project would cover 33 square miles across — and under — two counties in southwestern New Mexican. Corporations, universities and the federal government would use the facility to test new technology in clean energy, homeland security and autonomous vehicles on a large scale, but without inconveniencing, or even endangering, millions of people who live in actual cities.

“People will be able to see how things work in a real-world environment,” Paul Feiler, CEO of CITE Development, said in a phone interview. “We needed a place that was remote to test technologies deemed too dangerous for major population centers.”

“The scale and scope of this project is off the charts,” said Peter Bianco, a former board member of the Association of University Research Parks. “It’s unprecedented.”

And not in a good way.

First of all, Bianco said, creating a large area for innovation where researchers and entrepreneurs can create new technology is extremely difficult, because you need a number of things in the same location: venture capital, talent, infrastructure and proximity to major research universities.

In 2010, Bianco led an effort to build a research park near downtown Minneapolis, next to the University of Minnesota. The effort failed because he could not find the money to finance the project.

As for the demonstration city in New Mexico, he said, you can’t just build something in the middle of nowhere and hope everything else will follow.

The New Mexico demonstration city’s economics also don’t add up, he said.

Feiler said it would cost $700 million to $900 million to build the city. To generate revenue, Pegasus and Berkeley Research Group would lease out buildings and provide services to help customers test, develop and find commercial uses for experimental technology.

But given the high cost to construct the city and keep it running, investors are unlikely to recoup their money anytime soon.

That’s an awfully tough sell, even for deep-pocketed Silicon Valley. Indeed, the project has yet to land any investors or customers. Feiler said the city has attracted strong interest from parties but declined to name them.

He also said the project enjoys support from the Department of Homeland Security and from New Mexico Gov. Susana Martinez.

The group’s presentation material includes this quote attributed to Martinez: “We are committed to providing the resources, open spaces and talented workforce required to make this project a success. My administration is committed to an ongoing relationship with CITE that will allow the center to thrive and create jobs that will put New Mexicans to work.”

However, those “resources” apparently don’t include taxpayer dollars. Angela Heisel, a spokeswoman for the New Mexico Economic Development Department, said the agency is providing only “technical assistance” to the project. But the department hasn’t heard from Pegasus for some time now, she said.

The governor’s office did not respond to a request for comment.

All in all, the project sounds dubious at best. Berkeley Research Group is perhaps the one thing that gives it credibility. The company boasts a prominent roaster of consultants operating in places like Sydney, Hong Kong and Kuwait City.

But it will take a lot more than wine and shrimp cocktails to get this city off the ground.

Thomas Lee is a business columnist for the San Francisco Chronicle. He is the author of “Rebuilding Empires,” (Palgrave Macmillan/St. Martin’s Press), a book about the future of big box retail in the digital age. Lee has previously written for the Star Tribune (Minneapolis), St. Louis Post-Dispatch, Seattle Times and China Daily USA. He also served as bureau chief for two Internet news startups: MedCityNews.com and Xconomy.com.